Legislative Spotlight: SECURE Act 2.0
posted by Fisher 401(k) December 6, 2021
You might be familiar with the Setting Every Community Up for Retirement Enhancement (SECURE) Act, and how it impacted 401(k) rules. From opening up accounts for part-time employees to penalty-free withdrawals for childbirth or adoption—the SECURE Act legislation changed the retirement plan landscape. Now, a new bill—nicknamed SECURE Act 2.0—looks to adjust, improve, and expand on the original bill, with updated rules around 401(k) plans and other retirement savings options.
Securing a Strong Retirement Act of 2021
The Securing a Strong Retirement Act of 2021 is a bipartisan bill with more than 40 provisions that aim to give Americans more, easier ways to save for retirement. The hope is that this bill will encourage more people to save through 401(k) plans or other retirement options.
Most of the provisions in the SECURE Act 2.0 make it easier for businesses to offer and maintain retirement savings plans and expand ways participants can contribute to and make withdrawals from their retirement savings. Let's take a closer look and a few notable pieces of the SECURE Act 2.0:
This legislation would require businesses to automatically enroll eligible employees into 401(k) or 403(b) plans, with a contribution rate of 3% of their salary. Participants' contribution rates would automatically increase each year by 1% until their contribution reaches 10% of their salary. Employees could decide to contribute more—up to annual contribution limits—or opt out of the plan if they desire.
What's the impact on you? This could significantly increase participation and deferral rates for retirement savings plans. However, it could also increase the administrative burden for plan sponsors, especially for companies with high turnover.
Credits for small business
There are several credits within Secure Act 2.0 that would make sponsoring a retirement plan more cost-effective than ever for small business owners. A few of these credits include:
- A credit to cover 100% of the start-up costs to implement a 401(k) plan over the first three years.
- A credit for employers (up to $1,000 per participant) to offset direct contributions to their employees' 401(k) plan.
- A credit for employers who allow spouses of those serving in the military to participate in the 401(k) within two months of joining the company.
What's the impact on you? These credits will likely benefit participants by increasing employer contributions toward 401(k) plans. And as a result, there could also be an increase in employee participation and deferral rates, which could produce more favorable compliance testing for plan sponsors.
Several other provisions in SECURE Act 2.0 would make retirement savings plans more accessible and beneficial, including:
- Requiring companies to allow employees to contribute to a 401(k) if they work at least 500 hours per year for two consecutive years (previously three consecutive years).
- Allowing employers to make matching contributions to an employee's 401(k) based on the employee's student loan payments.
- Creating a national online lost-and-found database for retirement plans to help workers find former employers and vice versa.
- Increasing catch-up contribution limits for older participants to $10,000.
What's the impact on you? These provisions will likely result in higher participation rates as well as higher deferral rates for participants. There may be increased administrative burden for certain employers, however it will also result in employees getting more out of their 401(k) benefits.
To learn more about how the SECURE Act 2.0 and other proposed legislation, download our Legislative Overview Chart. This handy reference tool outlines key provisions of recently proposed legislation and how they could impact 401(k) plans, sponsors, and participants.